DBRS Morningstar Assigns Provisional Ratings to NYMT Loan Trust 2022-INV1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Mortgage-Backed Notes, Series 2022-INV1 (the Notes) to be issued by NYMT Loan Trust 2022-INV1 (NYMT 2022-INV1 or the Trust) as follows:

-- $188.8 million Class A-1 at AAA (sf)
-- $24.8 million Class A-2 at AA (sf)
-- $36.5 million Class A-3 at A (sf)
-- $22.7 million Class M-1 at BBB (sf)
-- $16.9 million Class B-1 at BB (sf)
-- $16.9 million Class B-2 at B (sf)

The AAA (sf) rating on the Class A-1 certificates reflects 41.85% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 34.20%, 22.95%, 15.95%, 10.75%, and 5.55% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

This a securitization of a portfolio of fixed- and adjustable-rate, investor debt service coverage ratio (DSCR), first-lien residential mortgages funded by the issuance of the Mortgage-Backed Notes, Series 2022-INV1 (the Notes). The Notes are backed by 1,140 mortgage loans with a total principal balance of $324,702,771 as of the Cut-Off Date (September 30, 2022).

NYMT 2022-INV1 represents the first securitization issued by the Sponsor, New York Mortgage Trust, Inc. (NYMT), backed by business purpose investment loans underwritten using DSCR. The originators for the mortgage pool are Constructive Loans, LLC (Constructive; 95.0%) and other originators, each comprising less than 15.0% of the mortgage loans. Fay Servicing, LLC is the servicer of all the loans in this transaction.

The mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile, and the DSCR, where applicable. Because the loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s Ability-to-Repay (ATR) rules and TILA/RESPA Integrated Disclosure rule.

The Sponsor, Representation Provider, and Servicing Administrator are the same entity (NYMT), and the Depositor is its affiliate. The initial Controlling Holder is expected to be the Depositor. The Depositor will retain an eligible horizontal interest consisting of the Class B-2, B-3 and XS Notes representing at least 5% of the aggregate fair value of the Notes to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure. Additionally, the Depositor will initially own the Class M-1, B-1 and Class A-IO-S Notes.

Computershare Trust Company, N.A. (Computershare; rated BBB with a Stable trend by DBRS Morningstar) will act as the Master Servicer, Paying Agent, Note Registrar, and Custodian. Wilmington Savings Fund Society, FSB will act as the Indenture and Owner Trustee.

On or after the earlier of (1) the third anniversary of the Closing Date or (2) the date when the aggregate unpaid principal balance (UPB) of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Issuer, at its option, may redeem all of the outstanding Notes at a price equal to the class balances of the related Notes plus accrued and unpaid interest, including any Cap Carryover Amounts, and any post-closing deferred amounts (optional redemption). An optional redemption will be followed by a qualified liquidation, which requires (1) a complete liquidation of assets within the trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.

On any date following the date on which the aggregate UPB of the mortgage loans is less than or equal to 10% of the Cut-Off Date balance, the Servicing Administrator will have the option to terminate the Issuer by purchasing all of the mortgage loans and any real estate owned (REO) property at a price equal to the sum of the aggregate UPB of the mortgage loans (other than any REO property) plus accrued interest, the lesser of the fair market value of any REO property, and the stated principal balance of the related loan, and any outstanding and unreimbursed servicing advances, accrued and unpaid fees, any preclosing deferred amounts, and expenses that are payable or reimbursable to the transaction parties (optional termination). An optional termination is conducted as a qualified liquidation.

For this transaction, the Servicer or any other transaction party will not fund advances on delinquent principal and interest (P&I) on any mortgage. However, the Servicer is obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties (servicing advances).

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the Class A-1, A-2, and A-3 Notes (the Senior Classes) subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Trigger Event). After a Trigger Event, principal proceeds can be used to cover interest shortfalls on the Class A-1 Notes before being applied sequentially to amortize the balances of the notes. For all other classes, principal proceeds can be used to cover interest shortfalls after the more senior tranches are paid in full (IPIP).

Excess spread can be used to cover realized losses before being allocated to unpaid Cap Carryover
Amounts due to Class A-1 down to A-3. The Class A-1, A-2, and A-3 fixed rate coupons step up by 1.00% on and after the payment date in December 2026 (Step-Up Date). Of note, interest and principal otherwise available to pay the Class B-3 interest and interest shortfalls may be used to pay any Class A Cap Carryover amounts not covered from excess spread after the Step-Up Date. In addition, the fixed rate for Class B-2 will be 0.000% on and after the Step-Up Date.

On September 28, 2022, Hurricane Ian caused extensive flooding and other substantial damage throughout Florida and parts of North Carolina, South Carolina, and Virginia. As a result of Hurricane Ian, a state of emergency was declared in Florida, Georgia, North Carolina, South Carolina, and Virginia.

The issuer ordered post disaster inspections (PDIs) for properties in zip codes that have been approved by FEMA for individual assistance as a result of damage caused by the hurricane. Prior to the closing date, to the extent the PDIs report material damage to properties in the affected areas, the loans secured by those mortgaged properties will be removed from the pool. For PDIs that report material damage after the closing date, the Issuer will assess the condition of the properties and the borrowers’ remediation plans at that time to determine whether the loans secured by those properties need to be removed from the pool.

Coronavirus Pandemic Impact
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. Shortly after the onset of the pandemic, DBRS Morningstar saw an increase in delinquencies for many residential mortgage-backed securities (RMBS) asset classes.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term periods of payment relief that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forbear mortgage payments was widely available, driving forbearances to an elevated level. When the dust settled, loans with coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.

As of the Cut-Off Date, there are no loans that are subject to an active coronavirus-related forbearance plan with the Servicer or a Subservicer.

For more information regarding the economic stress assumed under its baseline scenario, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios for Rated Sovereigns:
September 2022 Update,” dated September 19, 2022.

The ratings reflect transactional strengths that include the following:

-- Improved underwriting standards,
-- Certain loan attributes,
-- Robust pool composition, and
-- Satisfactory third-party due-diligence review.

The transaction also includes the following challenges:

-- 100% Investor loans,
-- No servicer advances of delinquent P&I,
-- Representations and warranties framework, and
-- Servicers’ financial capability.

The full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (April 1, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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